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How well ordered is your financial house?

As I See It

The heady experience of spectacular stock market gains has likely ended for the foreseeable future.

Analysts are now predicting that investors should anticipate a return to traditional gains of around 9% annually. Somewhat disappointing after having enjoyed 20%+ gains year after year, but everyone probably knew the financial feast couldn’t last forever.

Now is a good time to accept that our financial security is going to require an injection of self-discipline if we are to prosper over the long term. The beginning of a new year and a new financial era is a good time to revisit the basics of sustained wealth creation.

Since our earning power is our greatest financial asset, we need to continuously invest in ourselves. Commitment to continuing education, training and personal growth will enhance the value of this asset. The rapid advances in technology demand that we keep ourselves current if we are to prosper in the “New Economy.”

If we are going to be around for the long haul and we are not beset by some physical or material catastrophe, our ability to earn a living is our only concern. However, life sometimes deals misfortune to even the best people, and we need to be prepared for the unexpected. In order to protect our assets and our loved ones, we need to maintain adequate insurance to minimize life’s big risks. Health, property, disability, liability and life insurance can insulate us against exposure to catastrophic losses that will undermine the best-laid financial plans.

America is drowning itself in consumer debt. This is a bad thing. Debt is useful and appropriate if used wisely, an albatross if used irresponsibly. Borrow sparingly. Use credit only to purchase things of lasting value: a home, an education, an automobile. Pay cash for expendables such as clothing, travel and general living expenses. People who use debt carefully and sparingly hardly ever get in financial trouble.

The dizzying rise in the securities markets over the last decade has discouraged many Americans from saving money. It was easy to get lulled into believing that a constantly rising market made saving unimportant. Not true. In truth, most successful people save a portion of their earnings every month. Pay yourself first. Otherwise, discretionary expenses have a way of expanding to consume every dime left in the account.

If the collapse of the technology stocks has taught us anything it is to invest conservatively. Swinging for the bleachers gets the financial batter struck out while a bunt will get you to first base. Put the bulk of your investments in a diversified portfolio of traditional securities and you will do no worse than the American economy does.

Forget market timing and all of the other gimmicks that imply that you can outsmart the market — you can’t. The American economy has always been a good place for long-term investment. Adopt the goal of doing as well as the economy overall and don’t stress yourself with trying to beat the market.

Keep it simple, stupid: Happiness is not found in garages full of “stuff’ but in living a balanced life.

Big mortgage payments, car lease payments, etc. can prevent us from accumulating a satisfactory financial stash. Take a close look at how you’re living and try to decide what’s important and what’s dispensable. Ignore what the “other guy” is doing — live your life according to your own priorities.

Lastly, don’t be suckered into incredible deals.

Most unbelievable deals are pure junk. Stick to the traditional stuff. See if you can think of any truly wealthy people who built their fortune by sending money to a Nigerian numbered bank account promising mega financial return. I doubt you can.

Keep things simple and live life to the fullest. Remember that, in the final analysis, a loving relationship with other people is the most important thing on earth. Live frugally and try to help your fellow man along the way.

Thought for the Moment

The gate is narrow and the road is hard that leads to life and there are few who find it.

— Matthew 7:14

Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at cpajones@msbusiness.com.

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